The number one reason you can’t buy used cars is that you can’t and won’t pay the price. It’s that simple. You and your used car manager can spin it anyway you want, but the bottom line is when you or they see a car that you would like to have on your lot you will not step up and pay the price. There are logical reasons for this, most of which need to go away.
For you they may go away in six months, a year, two years or three years but it’s going to happen and for the sake of your operation I hope it’s sooner rather than later.
Let me dissect this deal for you. The odds are pretty good that your internal labor rate is $75 to $125 depending on what part of the country you are in. Your average reconditioning costs are running $800 to $1400 depending on a couple of things.
One reason would be that you are in the “Newscar” business. That’s when you carry a lot of late model stuff and thus your recon cost would be lower because you’re not spending a lot of money on these cars as they still have factory warranty. (Bad strategy that happens when your used car manager gets tired of getting killed every time he/she sends an older car into service.)
Or, if you are a big time “Certified Dealer” then your cost per unit would be higher because of the factory requirements.
So let’s round the reconditioning number off to a nice $1000 per copy. (Do your own math if you don’t like mine.)
The next part of this dissection is those wonderful little packs you add on to protect yourself from paying too much in salesman’s compensation and other little safeguards you feel you have a need for. I come from the “Pack Generation.” Always loved them. The business has changed. I’ve changed and you should change.
On average, hard and soft packs combined run $500 to $1000. So let’s round that number off to $800. When you add my little rounded off numbers from the reconditioning and packs you have a total of $1800.
So as I often say, “Here’s the deal.” You are starting off from “jump street” with an $1800 cost disadvantage against those dealers who aren’t doing it the old fashioned way. (CarMax and Texas Direct to name just two of them.)
We can debate the way you charge the sales department in service all day long. But your theory of if we don’t charge them full retail (or close to full retail) that they will just give it away in the sales department is “old, tired and a worn out” theory. You cannot continue to rely on the sales department to prop up the service department. Sooner or later the folks in service are going to have to get better with how they sell and develop your customer base.
Propping up service is much like the unemployment checks people have been getting the last few years. As long as the government keeps handing them checks then there isn’t much sense in them getting out and looking for a job.
What compounds the problem is your pay plan. As long as you keep paying sales people and sales managers on gross you are going to fight a losing battle. Yes, this is a hard one for you to get your head around, but sooner or later you gotta “get real.”
What if you changed the pay plan and took gross out of the equation? Under that scenario what you charged in service and the need for packs would be irrelevant. Per last week’s article, most dealers are turning more and more into “One Price” dealers because of the Internet. Sales people and managers will continue to be less and less effective in terms of “working the customer” for more gross at the front door. The gross is being set by the Internet before they ever show up.
What if you thought of reconditioning as simply another line item expense on your statement just like you think of advertising or supplies? Keep in mind this article is all about “why you can’t buy more cars.” If reconditioning and packs were not screwing up your “cost basis” then you could absolutely buy more cars and no doubt you would sell more because you would be in them right and have a pricing advantage over the competition. When I say you can buy more cars, I’m also talking about buying more “trade ins,” which obviously allows you to make both more new and used car retail deals.
There is no doubt this is a difficult cultural shift for your business just like what’s happening to you with the Internet moving you towards “One Price.” You’ve been successful doing it the “Old Fashioned Way,” but you are going to find it harder and harder to do so.
Just ask yourself the following. If you had a clean sheet of paper, started over from scratch, how would you do it in today’s world? That’s all I’m gonna say. Tommy Gibbs.
Other Steps You Need to Take
Combining vAuto’s stocking tool and AutoCount USA data are good first steps to your cultural change. Research is the most important and most often left out element in the equation of finding the cars and trucks we need. It’s time consuming and cannot be done once every few months. It’s a daily process. Unfortunately it cannot be done by the typical stereotype used car manager.
You need a geek who understands the car business and can sit in front of a computer most of the day. There are a number of things that “Geeky” can do really well for you. With the right direction they can do research, they can buy online and they can handle the re-pricing of current inventory.
If you can hire a former CarMax person for this position then your chances of success just went way up because they understand the importance of data and the role it plays in inventory turn and profits. It’s not a perfect science, but vAuto’s Stocking Tool makes this job so much easier than ever before.